Standing Committee A

[Mr. Edward O'Hara in the Chair]

Tax Credits Bill

Clause 4 - Claims: supplementary

Amendment proposed [this day]: No. 8, in page 3, line 10, after 'manner', insert 
'before an official of the Board who is satisfied that all facts necessary to establish the claim have been made out'.—[Mr. Flight.]
 Question again proposed, That the amendment be made.

Edward O'Hara: I remind the Committee that with this we are taking amendment No. 13, in page 3, line 23, at end insert
'provided that such person has appeared before an official of the Board, who is satisfied as to the identity of such person and of the claimant and that the such person acts genuinely for the claimant.'.

Howard Flight: I warmly welcome you to the Chair, Mr. O'Hara.
 I made the point this morning that the system of requiring interviews for those taking the fast track in winding up estates—a considerable number of people—has worked well in helping those involved and in helping the Inland Revenue to keep an eye on matters. The Minister's main objection to our amendments, which would require a meeting with the relevant Revenue officer, was that too many people would be involved for it to be practicable. That may be a fair point, but both the working families and children's tax credits are complex. It is not easy to work out what people qualify for or the average number of hours worked. I anticipate that the majority of people will want interviews to help with their forms. In many ways our amendments are more important for that reason than for the avoidance of fraud. 
 Just before lunch, I received, as other hon. Members may have done, a note from the citizens advice bureaux expressing concern that it would be difficult to advise, for example, a lone parent wanting to move off benefit and into work. It is difficult to forecast income over a year. The tax credit inquiry centres run by the Inland Revenue to advise people on their applications may be inadequate. 
 Compulsion may be over the top, but if the Bill is to help people, particularly people entering work for the first time, with a sophisticated and complicated matter and prevent a high level of wrong claims—some 75 per cent. of claims for the children's tax credit were found to be wrong—substantial resources will be necessary so that Revenue officers can meet people to go through their circumstances and advise them. The matter is not simple and it is mistaken to think that inquiries through the internet and modern communications in such complicated territory will work satisfactorily. I hope that the Government accept that. 
 I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 9, in page 3, line 11, at end insert
'provided that no claim shall be made for any period more than 4 weeks after the date upon which the same is payable.'.

Edward O'Hara: With this it will be convenient to take the following amendments: No. 10, in page 3, line 13, leave out 'earlier or'.
 No. 11, in page 3, line 19, at end insert 
'provided that the prescribed time shall not be more than 4 weeks later than the date upon which the award becomes payable.'

Howard Flight: These are partly probing amendments. Amendment No. 9 would limit the backdating of claims to four weeks. There is no apparent limit in the Bill, but there is major scope for errors, fraud, sloppy administration by the Inland Revenue, and waste of time and money in legal costs to recover money. Four weeks may be too short and a longer period may be reasonable, but a time limit is needed to avoid inefficiency, fraud and waste.
 Amendment No. 10 is slightly different. As matters stand, the Revenue can treat claims as if they were made earlier than they were actually made. As drafted, the clause gives scope for bad management, and almost encourages the incompetent handling of claims. The amendment is designed to put pressure on those who administer tax credits, and on those who make claims, to do so in good time.

Steve Webb: I, too, welcome you to the Committee, Mr. O'Hara. You were in the Chair the first time I served in Standing Committee, some four years ago, and I shall leave you to judge whether I—or the rest of the Committee, for that matter—have progressed at all since then.
 I have some misgivings about the amendments, in that there appears to be some misunderstanding about what the powers are intended to allow the board to achieve. People may claim late, after the point at which they became entitled, for perfectly good reasons that have nothing to do with fraud or poor management. Provisions in the social security system variously allow backdating of one month, three months or, in some cases, 12 months. Because of the complexity of the tax credit scheme, an entitlement to claim may not be instantly apparent to the person concerned. 
 A face-to-face appointment with an adviser, or with a representative of a citizens advice bureau, may be booked some weeks after the event that triggers entitlement. Therefore, for someone to lose money because the process was not completed within four weeks seems unduly restrictive. A delay between making a claim and becoming entitled could occur through no fault of the claimant, and the more complicated the system, the more excusable such a delay should be. Amendment No. 10 would appear to rule out any backdating at all, and in my view that is too restrictive. We should concentrate on helping to ensure that entitled non-recipients get their money—even if they get it a bit late—rather than on taking money off them and penalising them for the complexity of the system. For those reasons, I am disinclined to support the amendments.

Paul Boateng: I join other members of the Committee in welcoming you to the Chair, Mr. O'Hara. It is always a pleasure—in this case, an unexpected one—to serve under you, and I am delighted to make my first appearance in Committee under your chairmanship.
 The hon. Member for Arundel and South Downs (Mr. Flight) kindly made it clear that the amendments, which deal with the mechanics of making claims, are probing amendments. That is extremely helpful and I am happy to respond accordingly. Amendment No. 9—I appreciate that it is imperfectly drafted because it is a probing amendment—would restrict the time allowed for claims to a maximum of four weeks. I hope that the difference between the Government and the Opposition on this point is one of degree, rather than substance. 
 We want to stress that the essential point about tax credits is that they are designed to target support at the time that people need it. We want to encourage people to take up their entitlement in good time, so that they can get the support that they need when they need it. Having said that, we need to allow claimants reasonable time to identify that they are entitled to claim, and to claim. As the hon. Member for Northavon (Mr. Webb) suggested, it is important that the claims process be flexible and recognise the practicalities of people's lives. We must recognise that the times when one first qualifies for a working tax credit or a child tax credit—when one starts a job, or one has a new arrival in the household—are often particularly busy and stressful. We will therefore allow a period of three months in which claims can be made, rather than the four weeks proposed in the amendment. 
 There is a balance to be struck, and we must offer flexibility and recognise the everyday practicalities of real life. A time limit of three months will enable the rules governing child tax credit claims to be aligned with those governing child benefit claims on the birth of a child. That will allow new parents to claim the child tax credit and child benefit in tandem—a further part of the integration process. However, because the time limit is set out in regulations, we can keep it under review in the light of experience. I hope that that clarifies matters for the hon. Member for Arundel and South Downs, and that he finds that acceptable. 
 On amendment No. 10, even with a time limit of three months, there will inevitably be cases where a timely claim proves invalid for one technical reason or another. We do not want the entitlement of claimants who have done their best to comply with the rules to be curtailed through no fault of their own. To avoid such claimants losing out on a technicality, it would be appropriate to treat a claim as if it had been made earlier than it actually was. It is for such circumstances that the phrase ''earlier or'', in subsection (1)(b), is intended to cater. To avoid claimants losing out unfairly, it is right to allow some flexibility in respect of the effective date of claim. The current rules for working families tax credit and disabled person's tax credit allow some room for manoeuvre, and we intend to take a similar approach in the regulations dealing with claims for the new tax credits. 
 Amendment No. 11 would restrict the power, conferred in clause 4(1)(d), to make regulations. The power allows regulations to provide that an award of tax credits be subject to the condition that requirements for entitlement be satisfied at a prescribed time. If the amendment were accepted, the prescribed time would be within four weeks of the date on which the award becomes payable. I reassure Opposition Members on this point. The Government do not intend that tax credits be awarded to those who do not in any sense meet the qualifying conditions. 
 We will consider the main clauses dealing with entitlement—clauses 8 to 12—in due course, but the basic principle is that the qualifying conditions for eligibility for tax credits must be met. People cannot qualify for tax credits until they meet those conditions, and they will cease to qualify once they no longer meet them. Clause 4 (1)(d) is not intended to undermine that principle, and it is certainly not intended to allow the Inland Revenue to make payments—not even those limited to four weeks—to people who do not meet the qualifying conditions. It is simply a machinery provision. We are concerned with the mechanics of making claims, not the rules of entitlement. 
 Paragraphs (b) and (c) of clause 4 (1) allow that, in certain circumstances, claims may be made in advance of a person's becoming entitled to tax credits. We are still considering the circumstances in which that provision may apply. A possible example is the person who knows that they are about to start a new job. In such a circumstance, it may be right that the regulation allow them to submit a claim for a working tax credit shortly before they commence work, so that the Inland Revenue can ensure that the credit is available as soon as they qualify for it. As I have said, we must ensure that we deliver the payment when it can do most good and when it is most obviously needed. 
 However, it will be necessary to make it clear, as we shall in regulations, that a person who submits an advance claim is entitled to receive working tax credit only if they actually take up the job. The award needs to be made conditional on the requirements for entitlement being met at the date on which the award is set to begin. If the requirements are not met on that date, the reward will never become payable. Paragraph (d) is designed to enable us to impose that conditionality whenever an advance award is made. The requirements for entitlement will need to be met on the date on which the award is due to begin, not four weeks later, or even two weeks later. I hope that with that clarification the hon. Member for Arundel and South Downs will feel able to withdraw the amendment.

Howard Flight: I thank the Minister for his response and in particular for clarifying, at least for me, that the Government initially intend there to be a three-month time limit. That addresses the main issue that we were raising. What everyone wants to avoid is the development of a lucrative trade for clever lawyers specialising in back-claiming for long periods, long after that support was needed for the people concerned, who have survived notwithstanding.
 Making claims in advance arises later in the Bill, especially under clause 7, and will need a fair degree of probing. However, I thank the Minister for his explanation of what ''earlier'' is intended to mean in the context of clause 4(1)(b). On the basis that, essentially, three months' backdating will be the limit, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 12, in page 3, line 20, leave out paragraph (e).
 This is also in the main a probing amendment to ask why there is a provision for a claim to be made after a person has died. That is not the same issue as where children have died, which is addressed in clause 51. Some child tax credit claims will continue or potentially increase if one spouse has died. Would it not be better to hasten the process of the claim being made by the surviving spouse or partner? The intent may be to refer to claims that people are not entitled to and qualified for because they are dead, but that are still being paid after death for administrative reasons. There is a principle that money should be spent on the living in need rather than on what amounts to an administrative issue. The real question is: why is that provision included?

Paul Boateng: Were we to leave out clause 4(1)(e) we would leave out a provision that allows a claim to be made or proceeded with in the name of a person who has died. We want to include that measure. It is important in our view to allow up to three months for a claim to be made. Couples will be required to make joint claims. If a couple did not claim the tax credits to which they were entitled immediately, they would normally be able to make a claim within the following three months and have the award backdated to the point at which they started to qualify.
 Clause 3(2) requires that such a claim be made jointly but, clearly, it could not be if in the interim one party of the couple died. If a claim were made while both partners were living, that should not disqualify the other partner from the benefit that would otherwise have accrued. Without the Bill's provision, the surviving partner would find themselves denied tax credits for which they would otherwise be eligible. That would not be just, particularly at the difficult time when there are real needs in a family because of the end of a partnership through the death of a partner. The amendment would deny a partner the opportunity of gaining the benefit that should accrue to them by virtue of their partnership. That is probably not the intention of Opposition Members, so I hope that they will withdraw the amendment.

Howard Flight: I thank the Minister for his response. Whether the enforced making of joint claims, particularly in relation to children, accords with human rights law arises later in the Bill. A number of people in the charity sector are keen to ensure that that is the case. On the assumption that it is the case, I understand the reason for the provision. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Edward O'Hara: Before we proceed, I note that there will have been debate on no less than five groups of amendments to the clause. I am therefore minded, unless I sense strong objection, to move the clause stand part without debate. The next amendment gives opportunity for wide-ranging contributions, and I will be tolerant of that.

Howard Flight: I beg to move amendment No. 14, in page 3, line 28, leave out paragraph (h).
 This is again a probing amendment. Why is the phrase 
''treated . . . in such other circumstances as may be prescribed''
 included? It appears to be a woolly, catch-all addition, which again widens scope for wasted administrative costs and fraud. As we have said, the rules should be clear and there should be a requirement to stick to them. In essence, why is the paragraph included?

Steve Webb: Taking notice of your suggestion, Mr. O'Hara, I have a broader point that addresses clause 4(1)(g), but which could arise under paragraph (h). Where a claim is treated as being made by one member of a couple, there could be conflict between the two members about who makes the claim. What happens when dispute occurs between them? That may be covered in regulations, but can the Minister indicate whether the board will make a decision or ruling in such circumstances? The clause addresses claims that can be made by one member of a couple or another, but they may have conflicting reasons for wanting to be the claimant. Perhaps the Minister could give us a steer as to what the regulation may say.

Paul Boateng: The reading of clause 4(1)(h) is assisted when read in conjunction with clause 17. As I deal with the amendment, I will briefly outline how the clause is intended to work. In due course I shall come to the point made by the hon. Member for Northavon.
 Clause 17 deals with the finalisation of tax credit awards at the end of the tax year. It would require the Inland Revenue to issue notices to people who have been awarded tax credits setting out the information on which the award has been based. Those people will be able either to confirm that the information is correct or to provide up-to-date details of their income and circumstances. The Revenue will use that information to make a final decision as to claimant's entitlement for the year just ended. That is dealt with under clause 17, which we shall discuss more fully in due course. 
 Where appropriate, the Revenue will use that information to renew people's awards for the year ahead without them having to do anything further. Co-ordinating the process of renewing claims with that of finalising awards will ensure that claimants are not subject to multiple requests for the same information. There will be a single information-gathering exercise each year, which will keep the burden on claimants to a minimum and ensure that claimants with an entitlement to tax credits can see their payments continue without interruption. For some families, significant changes in their income and circumstances from one year to the next may have little or no effect on the tax credits to which they are entitled. We 
 therefore intend automatically to renew the awards to those families each year, which will be less burdensome for them. That will be similar to the way in which claims to income tax relief such as the children's tax credit continue in many cases without a new claim being required every year. 
 The Inland Revenue will write to those families setting out the information that it holds about them, and explaining that it intends to renew their award. The claimant will have an opportunity to update the information if it is wrong, and under clause 17 they will be required to do so. If that information is correct, there will be no need for the claimant to contact the Revenue, which will simply renew their award. 
 Strictly speaking, clause 3 provides that when an award runs out at the end of the tax year, a new claim is needed to trigger entitlement for the following year. It will therefore be possible to renew awards automatically only if a new claim can be deemed to have been made each year, and regulations under clause 4(1)(h) will allow that to happen. The point of deeming the claim is that that allows the award to continue automatically. The hon. Member for Arundel and South Downs and other hon. Members have pointed out the importance of ensuring that the new tax credit system minimises the burdens on those claiming the credit, and of streamlining the system so that families are able to get the support to which they are entitled with the minimum of hassle.

James Clappison: The Minister has provided a series of helpful explanations, which were needed, of the provisions in the Bill. Can we take it that in the course of renewals claimants will be kept fully informed as to what is going on and what is expected of them?

Paul Boateng: Claimants will be given the information required as and when it is necessary to inform them following any change in their circumstances. They do not want a barrage of correspondence. It is, however, important that they are aware of their entitlements and responsibilities, and the guidelines will make that clear. We must ensure that the Revenue is able to gather information to ensure that awards of tax credits are correct, and the Bill gives the Revenue all the powers that it needs to do that job. Where it is possible to keep awards running on the correct footing without asking claimants to fill in additional forms or to submit new claims, it must be right to do that. If the award is changed, and this has a direct bearing on the point made by the hon. Member for Hertsmere (Mr. Clappison), they must be told why.
 I turn to the point made by the hon. Member for Northavon. Clause 3 makes it clear that couples will be required to make a joint claim for the tax credit. That means that we require them both to sign the initial application form. For many couples, however, entitlement to tax credits will run on relatively unchanged from year to year. For those couples, it is important to keep red tape to a minimum when it comes to renewing their claim at the beginning of each new tax year. In some cases, we plan to allow a claim to be renewed by one partner on behalf of the couple, 
 which is allowed for in subsection (1)(g). In those cases, the Inland Revenue would contact both partners to ensure that they were both aware of the basis on which the award had been renewed. 
 If a dispute arose about circumstances, the Inland Revenue would ultimately have to take a view. If it needed further information, it could seek it, and it would have to tell both couples its view. In those circumstances, it is vital that both couples should have the opportunity to make representations. Similarly both couples would have to know, and be able to determine, why a particular decision or course of action has been arrived at.

Steve Webb: One concern about the sort of regime under which each partner is told the details of the whole claim, which would include information about the other partner's circumstances, is that the desire of men and women for privacy drove the move to independent taxation. The Treasury always tells us that tax credits are about making the benefits system more like the tax system, so why is there a distinction about privacy on tax credits that does not apply to income tax?

Paul Boateng: The distinctions exists for the very reasons that the hon. Gentleman outlined in his initial question. When people put forward a joint claim, they have decided jointly to claim. Once they have decided to do that, it seems right that both should subsequently be kept informed of decisions that arise as result of their joint claim. It is difficult to find a way around that without breaching another principle, namely that parties to a joint claim are entitled jointly to the information on which it is decided. A balance must be struck.
 One is aware from one's experience of family law practice—other members of the Committee also have such experience—that trust may, sadly, break down between parties in the course of relationships. In those circumstances, it is important that both parties have available to them the information that informs decisions that affect them both. Without that, the situation is unlikely to improve, and it may be made worse. 
 Tax credits target support to families according to their circumstances, which helps to match support to changing needs. They provide a way for the tax system to recognise a family's needs and to take account of the resources available to them. To do that, communication with the family, as a unit, is required. In that way, we are better able to match a family's overall contribution to the Exchequer to the family's circumstances. The couple's contribution to the Exchequer and their shared circumstances are evidenced by their joint application. That is not a breach of independent taxation. Everyone continues to have his or her own personal allowance and to set his or her own personal set of rate bands—that does not change—but the couple make a joint application as a family. The circumstances of the family are taken into account, and it must be right that family members should know all that there is to know about the basis on which decisions that jointly affect them are made. 
 Sadly, some families break up. That leads to a change in circumstances, in that the family is no longer a family. The consequences will include changes to the couple's eligibility for tax credits.

Howard Flight: I thank the Minister for his explanation. If there is to be a regime of deemed new claims for the following year to save administration, it would be prudent to require people to confirm to the Revenue that their circumstances have not changed. If the Revenue is to rely purely on a roll-over of information, that will be an incentive to people not to come clean if their circumstances change. That creates a need for care.
 As I now understand why the words are in the clause, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 82, in page 3, line 30, after 'made', insert
'or who may be entitled to make'.
 The amendment would insert a phrase to include not only people who have made, but may be entitled to make, a claim in the context of the board of the Inland Revenue supplying information relating to the claim or any other information that is relevant to entitlement to tax credits. This is about take-up. We should provide the board with powers and encouragement to supply information to people who might be entitled to make a claim but do not realise it because they do not understand the system. The amendment would give the board powers to supply the sorts of information mentioned in clause 4 both to people who have made a claim and to those who might be entitled to make one. 
 People who are entitled to make a claim should be able to obtain from the Revenue ready access to calculations, face-to-face help, efficient and helpful helplines, clear forms and explanatory literature. None of those are cheap. What mechanisms does the Minister plan to put in place to help to ensure that not only those who know that they are entitled to make a claim, but those who might be so entitled, receive information and are helped as far as possible? The Minister and I share a desire to maximise take-up, and the amendment would do that by giving the board powers to provide information to a wider spectrum of people.

Paul Boateng: I have no disagreement with the hon. Member for Northavon on take-up, and I recognise that it needs to be kept under constant review. We will have an opportunity later to reflect further on the issues involved. Several hon. Friends share with me an interest in take-up, and constituency experience demonstrates its importance. I therefore understand why the hon. Gentleman tabled the amendment.
 At first sight, the amendment suggests a misreading of clause 4(2), which does not deal with conveying information for the purposes of take-up, but allows the board to disclose to a claimant or claimants any information relating to their award so that they are aware of the basis on which decisions have been made. Of course, the board has powers to disseminate general information about the overall nature of the scheme 
 and its regulations. It does not require the amendment to enable it to fulfil its responsibilities. 
 Under subsection (2), the board can disclose to a claimant information relating either to the claim or to an award of tax credit made on the claim. That is important because the Revenue needs to react to the information that it receives, contacting claimants to check details and adjusting awards to ensure that the correct amount of tax credit is paid out. In doing so, it must ensure that claimants understand why any changes are made. For example, if a couple have made a joint claim and one member of the couple notifies the board of a change of circumstances affecting the award, the board will need both to amend the award to reflect the change and to explain to the other member of the couple why the award has been amended, to ensure that both parties agree. 
 The subsection is designed to deal only with that narrow purpose, but the amendment would widen its scope so that the board could disclose such information to any person who might be entitled to make a claim, as well as to claimants. That would make no sense in the context of the purpose of the clause. I do not denigrate for one moment the importance of take-up, but the amendment, in my respectful submission, is not the right way to deal with it. Where people have yet to make a claim, there is no claim or award about which to disclose information, so the proposed extension of powers is redundant. 
 I assure the hon. Member for Northavon and all members of the Committee that the Inland Revenue will make information about the new tax credits widely available so that people who are entitled to claim are able to do so. Work is already under way to ensure that people are helped to submit accurate claims and that clear, accurate and user-friendly information is provided. The Bill does not need to be amended to achieve that. There will be a dedicated tax credits helpline and publicity. Households entitled to income support or income-based jobseeker's allowance will be able to access the new credits at the same time as they claim their social security benefits. 
 People will need to provide information only to a single agency—jobcentre plus. That should assist in take-up. People moving into work from benefits will be able to ask staff at jobcentre plus for assistance in completing their claim for new tax credits, and information on tax credits will be provided by jobcentre plus when a person moves into work. That addresses a concern expressed by citizens advice bureaux and other organisations that have written to us. They want to ensure that people are fully aware of their entitlements and, where necessary, that they receive assistance in completing their claims. Jobcentre plus will then pass on their application to the Revenue, so people need to deal with only one Department and will not be pushed from pillar to post, as our constituents undoubtedly sometimes feel they are. Similarly, people will be able, if that is what they need, to obtain face-to-face help from Inland Revenue officers.

James Clappison: Before the Financial Secretary concludes his remarks, will he say a little about the circumstances in which a person would have a face-to-
 face interview? If not, I should be happy to receive a letter from him about it, if he wanted to deal with it in that way.

Paul Boateng: I should be happy to write to the hon. Gentleman about that and to inform other hon. Members of the contents of that correspondence.

Howard Flight: I thought that subsection (2) was a statement of the obvious and was in the Bill for data protection reasons. Is that the case?

Paul Boateng: Data protection is taken into account in the wording, but the Bill must make it clear, partly for the reasons outlined in our previous debate, that when people make joint applications, there will be communication as to outcomes and reasoning jointly with the parties to that application. Everybody should be aware of that from the outset.

Steve Webb: I am grateful to the Minister for putting on record some of the strategies that the Revenue will adopt to try to enhance take-up. I am particularly concerned about take-up of the working tax credit, as to some extent we are dealing with a client group that has had no experience of claiming means-tested benefits: the childless or the low paid may never have claimed means-tested benefits. If they have gone through the Jobcentre Plus process, some of the mechanisms that the Minister has described will reach them. I am aware, however, that a proportion of previously unemployed people and people who change jobs never come into contact with a jobcentre. I hope that the Minister can reassure us at some point, not immediately, that other take-up mechanisms for that group, which has less contact with officialdom, are also being put in place.
 However, I accept what the Minister said about the specific purposes of this part of the clause and I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 4 ordered to stand part of the Bill.

Clause 5 - Period of awards

Howard Flight: I beg to move amendment No. 15, in page 3, line 40, leave out subsection (1).

Edward O'Hara: With this we may take the following amendments: No. 45, in page 3, line 41, leave out 'whole' and insert 'first 6 months'.
 No. 64, in page 3, line 44, after 'made', insert 
'or is treated as being made,'.
 No. 46, in page 3, line 45, at end insert 
', or six months after that date, whichever is sooner'.
 No. 53, in page 3, line 45, at end insert 
'; and where such a claim is made within a period to be prescribed by regulations before the end of a tax year, it shall also be deemed to have been made in respect of the following tax year.'.

Howard Flight: As hon. Members will be aware, the clause sets out the length of time that tax credit awards will last and what will bring an award to an end. The
 arrangements are by no means clear. If, for example, a couple ceased to be entitled to a joint claim, it would come to an end, or vice versa, if an individual became part of a couple. However, a change in circumstances does not necessarily bring a claim to an end, except if the claimant no longer meets the conditions for a tax credit. In other words, if a tiny entitlement remained, the claimant would as a result, as I understand it, continue to receive a larger tax credit.
 The second big issue relates to the definition of hours worked. If a claim is permitted before the tax year starts based on the previous tax year, is it based on the hours worked in the previous tax year or on the hours expected to be worked in the ensuing and current tax year? 
 I appreciate that our amendment may partly defeat the intention of the Bill, because it proposes that claims should not be made in advance before the tax year starts and before people know what their circumstances are. The Liberal amendments follow the existing practice in limiting the time period for claims in advance to six months. 
 We are concerned that an unclear and complicated system for making claims in advance runs the risk of leading to major problems in recovery if claims are excessive, to substantial legal costs and to the inevitability of moneys going astray and that the provisions of the clause and subsequent related clauses are sufficiently loose to threaten a shambles. 
 If the Government wish to stick to this system for administrative reasons, other areas must be tightened up, but at least one approach is that suggested by our amendment—to deal with claims on the basis of the year in question and not on estimates which may or may not be favourable and which many people who do not know what their working hours will be, may find difficult to make.

Steve Webb: I want to respond briefly to Conservative amendment No. 15 and say a few words on the first three of the four Liberal Democrat amendments. I know that my hon. Friend the Member for Teignbridge (Mr. Younger-Ross) will seek to catch your eye, Mr. O'Hara, to say a few words on amendment No. 53.
 Amendment No. 15 would not allow a claim for a tax credit in advance of the year in which it was to be paid. While I understand the concerns about forecasting incomes, which I am sure we shall return to, the amendment would prevent historic data being used as a basis for a subsequent claim, even on the day before the start of a new tax year. Given the strong case for using historic data, and that is the direction in which some of the poverty groups would want to go, it could be counter-productive to remove that power. I should be interested in the Minister's comments. 
 Amendment No. 64, which inserts the words 
''or is treated as being made''
 after the word ''made'', is intended to achieve consistency. Clause 4(1)(b) refers to a claim for a tax credit being made in prescribed circumstances 
''to be treated as having been made on a prescribed date''.
 Therefore there is a provision in the Bill that relates not merely to the date on which the claim is made but to the date on which it is treated as having been made. Our question is whether that terminology should run through the Bill, so that subsequent references to when claims are made should also allow for the possibility that the date on which they are treated as having been made might be the relevant one. We have tabled the amendment once rather than 65 times, to see whether there is any substance in the point. 
 Our amendments Nos. 45 and 46 go to the heart of one of the two key issues of the new tax credits—whether it is sensible for them to run for a whole year. Clearly it is a question of balance and there is a trade-off here. The amendments enable us to raise our concerns about paying people a sum of money for a year. 
 The first concern is that, although there is provision for reassessment during the year, it may not happen. I am not saying that it will never happen, but that, for a variety of reasons that are not too difficult to imagine, some of the people whose claims should be reassessed during the year may not apply for reassessment. Therefore, at the end of a year people could find that they had been substantially overpaid. In an extreme case, somebody who anticipated, in good will, that they would be working an average of 30 hours a week might find, when looking back at the year, that they had worked 29-and-a-half hours a week. Their whole payment, including working credit, might turn out to be invalid. We could be talking about hundreds, perhaps thousands, of pounds in overpayment and the longer the period of assessment, the bigger overpayments will be. Because we are talking about low-income groups—high-income people get their flat rate child credits, analogous to the children's tax credit, so this is not an issue for them—the burden of repaying overpayments is more acute. The purpose of the amendment is to say that if things are allowed to continue for 12 months, large overpayments could result and make life a nightmare. Just as there is a take-up issue with claiming credit, sure as eggs is eggs, there is take-up issue on reassessment. Those who have claimed money do not always realise that their circumstances have changed sufficiently to warrant a reassessment.

James Clappison: I am listening carefully to the hon. Gentleman. Does he agree that somebody who discovers that they have received an overpayment is in a difficult position and possibly in the way of temptation? Many cases of fraud may arise because people do not declare a change in circumstances when they should. The circumstances that the hon. Gentleman outlines could be difficult for the person concerned.

Steve Webb: I have some sympathy with the hon. Gentleman's comments. When prediction is involved, there will be a grey area between people who, in good faith, make a mistake about how many hours they will work or what there income will be and those who wilfully misrepresent their circumstances. The division between those two groups is far from clear cut. The longer we allow matters to continue unreviewed,
 unchecked and unassessed, the greater the danger and the larger the sums that will be involved.
 In a similar vein, a corresponding danger exists for underpayments. The longer the set period of assessment, the more suffering that will occur for someone whose circumstances change and whose award is too low relative to what they would be entitled to were they reassessed. One could argue that if a person lost overtime or one day's work a week, they would know that they were worse off so would ask for a reassessment. However, we know that the world is not like that in reality. There will be a threshold for making reassessments and if a person stands to gain £5 a week of tax credit because of a change in circumstances, they may not pass the threshold for reassessment. In practice, a person would have to work out whether what had happened to them was big enough to warrant reassessment—we will be getting into difficult sums. If something happens in month three of a sixth-month period, people might get by for two or three months, then have a reassessment and catch up. However, what happens when something occurs in month one and the person does not get reassessed for 11 months? Lasting 11 months on an inadequate income—

Mark Hoban: Does the hon. Gentleman think that the position will be exacerbated when claims are rolled over from one tax year to another, as the Minister indicated will happen on the previous clause? If a person receives a piece of paper through the post that states their circumstances, they may not look at it. They could put it on their to-do list, not look at it again and be underpaid or overpaid as a consequence of an administrative procedure, which the Minister believes will make life easier for those claiming benefits.

Steve Webb: I understand the hon. Gentleman's point and he raises an important issue, which could be dealt with by shorter periods of assessment. I have some sympathy with the rolling over principle. Trade-offs must happen and rolling over in circumstances where nothing much has changed will cut administrative costs, increase take-up and help everyone. However, if rolling over happens in circumstances that have changed, a person may not realise that they are above a threshold. That could continue for another year, or more, and could be a problem. Real dangers are associated with a long period of assessment and the option of reassessment is not a defence. It will help extreme cases in which it is blindingly obvious that things have changed so much that a person should be looked at again, but there will be cases somewhere between negligible change and extreme change in which we will want people to get help and in which they would suffer if they were to get the wrong rates for the best part of a year.
 I touch briefly on the question of whether it would cause administrative chaos to have six-monthly instead of annual assessments. The jury is out on that because there will be people who will in any case have one, two or more reassessments under the Bill. Institutionalising the fact that people might have two assessments a year by allowing for six-monthly awards will not add to the number of assessments in some cases. If someone's 
 circumstances change a lot, they will already have two, three or four assessments a year. To provide automatically for two assessments will not necessarily create a huge increase in bureaucracy. 
 One might draw a distinction, which I do not think has been made in our discussion so far, between the people who are getting only what in the current system is the children's tax credit—the part that almost everyone gets—and those who get what is currently the tapered working families tax credit. The latter group are on lower incomes and more vulnerable and, for them, getting by on the wrong amount might matter more. The people at present on the children's tax credit can have huge variations in their circumstances without their entitlement being affected. Unless they go well into higher-rate tax, CTC does not get tapered away altogether, but the working families tax credit cuts out at middling incomes. There is a big chunk of people about whom we perhaps do not need to worry if they do not have six-monthly reassessments. It might be possible for them to roll on automatically for a year. The people we would then catch would be those whose circumstances change and who would really suffer were they not reassessed. 
 This is a big and radical issue for us. I understand the philosophy that says that it is all related to the tax system, although to be honest, it is related to the tax system when it suits the Government and not when it does not. We have joint assessment, which has nothing to do with the way in which the tax system works, because it makes sense for tax credits. In some respects, this system resembles the tax system, but not always. To put it charitably, if the desire to look too much like the tax system is at the expense of claimants' welfare, we need to think again. I hope that the amendments have put that important issue on the agenda.

Richard Younger-Ross: I am not too sure whether the Minister has pre-empted what I want to say, but I wish to pursue him a little further.
 What we are concerned about through amendment No. 53 is that we do not get to a position from reading the Bill in which a claim could be made in one week, but then, because 1 April has come round, it has to be made again. That would be totally stupid. The Minister's earlier remarks make it clear that there will be a roll-on: an application shall be deemed to apply for the following tax year. However, I am not too sure whether, as the hon. Member for Fareham (Mr. Hoban) said, that will happen year on year on year so that a person could be deemed to have claimed for 10 years, or whatever. I know that I am being extreme, but it was not made clear in what the Minister said earlier. Can he clarify what period is intended? Obviously, to have to re-fill out a form after one week would be inappropriate, but will it be two, three or four weeks, or will a claim roll on year in, year out?

Paul Boateng: This has been an important debate, going to the heart, as does clause 5, of one of the most fundamental principles of the two new tax credits. That is that the period of the tax credit award should be linked to the tax year. Amendment No. 15, as the hon. Member for Arundel and South Downs was good enough to say in his opening remarks, challenges that principle. However, the hon. Gentleman did not make clear what his party would propose as an alternative. Of course, he does not have to, because it is for us to propose and the Opposition to oppose. That is what they are about. However, the hon. Gentlemen who speak for the Liberal Democrats do have a clear alternative, to which I will turn, which is that the period of the award should be restricted to six months.
 Of course, the existing WFTC and DPTC are currently awarded for fixed periods of six months, and there are undoubtedly strengths in that approach. The fixed award provides certainty for claimants for those six months, but that inflexibility is also, in our view, a weakness. It makes it very difficult, except in limited cases, for the system to respond as people's circumstances change. It is important to understand that we want people to get what they are entitled to when they need it. It is not a question of seeking to develop a system that has two automatic reassessments during the year, which is presumably what would be achieved by a six-month period. We want to encourage people to tell the Inland Revenue about changes as they happen, rather than having a fixed, inflexible system of in-year assessments. 
 The new credits are designed to combine the advantages of a continuing award with the ability to adjust awards as changes occur, without additional burdensome requirements for claimants. By linking the period of the award to the tax year, we can make it easier for families to claim, provide continuity for those whose circumstances are settled and allow greater flexibility during the course of the award when it is needed. It is therefore important to stress—this deals with a point that several hon. Members, and certainly the hon. Member for Arundel and South Downs, made—that claims will not be rolled over except for people who have been on income support or JSA and are entitled to full CTC throughout, or for people who are clearly entitled only to the family element of CTC. 
 The scenario in which there is roll-over for year on year and in which it is possible for there to be wrong assessment, accumulated debts or underpayment is not likely to occur in real life. The new credits will be based on the annual income in a tax year and run for up to a year. Measuring income over a year fits better with the tax system and enables people to use the same information for their tax credits as they have to provide for income tax purposes. Crucially, it provides a fairer measure. I do not therefore accept the criticism that the whole scheme is based on aping the benefit system when it suits and the tax system when it suits. It is designed to move us towards a new system that is integrated, targeted, provides resources that take into account people's overall tax and national insurance contributions, and gives them the money when they need it. 
 The system is a new departure and we make no apology for that. It is a radical measure and we make no apology for that. It is a departure from the way in which things were done in the past. The National Association of Citizens Advice Bureaux does invaluable work in the wider community, advising our constituents, and is now working closely with the Inland Revenue on a range of issues. It has written to hon. Members and it is interesting that it is not calling for a return to the six-month period, as Liberal Democrat Members are doing. It raised various issues, to which we must be alert, concerning the 12-month period, but we believe that that is the right period. It will reduce the scope for manipulating income over a short, snapshot period, make it easier to check against tax records—Opposition Members expressed concern about fraud and temptation—and will be equitable for those with fluctuating and steady incomes. 
 The hon. Member for Arundel and South Downs asked how hours of working will be defined and we shall come to that on clause 10. It refers to qualifying, remunerative work, which will be defined in regulations. We want to look at the hours that people are working at the time of making a claim. If a claim were made in advance on the basis of expected hours, it would not become valid unless the claimant had started work and was working those hours. This is a tricky area and before drafting the regulations it will be necessary to have discussions with interested groups and reflect on possible definitions. I am happy to assure the hon. Gentleman that that will take place. However, we shall proceed on the basis that enables us to introduce a system that does not impose added burdens on claimants. I shall give an example. 
 The emphasis is on looking at current circumstances. If someone stops working 16 hours a week after six months, their entitlement will stop, but they will not lose their entitlement for the first six months. That is an important distinction when it comes to overpayment and possible claims back. That entitlement will stand and income will be assessed annually, but not the other circumstances that may affect the award. It is a question of balance and we believe that we have got it right. The annual system will produce a real gain for families and their employers. The current system in which information is gathered annually for tax purposes, but tax credits are assessed on a number of weeks of earning causes extra hassle for claimants and employers, who must deal with two systems at once. On Second Reading, concern was expressed and consideration was given to the burden on employers. We want to minimise that burden. The clause helps to streamline the way in which tax credits interact with the income tax system. Families' tax liabilities and tax credit entitlements will fit more closely together.

Steve Webb: I wonder whether the Minister is overstating the gains on two fronts. Employers will still be told how much tax credit to pay and will still deduct PAYE as separate transactions. An annual assessment is neither here nor there and will make no difference to employers. Likewise, the client group for
 the working families tax credit part of the scheme does not usually fill in tax returns because the majority of them have the right amount of income tax collected cumulatively through PAYE. Again, assessing them over a year or six months is administratively neither here nor there.

Paul Boateng: The issue cannot be dismissed as blithely as the hon. Gentleman suggests. We are moving towards integration of the tax and benefit systems so that the position is simplified for people and the resources they need to combat poverty are available as and when they need them. Employers certainly do not want a stop-and-start process involving changes in their payroll system every six months. That is a danger in the proposals of the hon. Member for Northavon. The measure provides important and practical benefits for families. I accept that a judgment must be made and the argument must be balanced. The issues are complex, but we believe that we have got the balance right.
 The purpose of amendment No. 64 is to make it clear that references to the date on which claims are made include claims that are treated as having been made on a different date. For example, when a claim is made in advance of the relevant criteria being met, it is treated as being made on the date on which they are met. I understand why the amendment was tabled, but I can give an assurance that it is unnecessary. Once a claim is treated under clause 4(1)(b) as being made on a different date from the actual date, the first date becomes the one that counts for all later purposes in the Bill. The amplification suggested by the amendment is unnecessary. 
 On amendment No. 53, one of the guiding principles of the new system is that the claims process should be user friendly and assessable. To require two claims in quick succession when someone enters the system close to the end of a tax year—the hon. Member for Northavon referred to this—might be cumbersome to claimants. I shall explain how the process is intended to work in such cases, which may allay the hon. Gentleman's concern. When someone makes a first claim near the end of a tax year, the claim will be effective for the short period remaining in that year. However, it also gets the claimant on the books so that their claim for the following year will go through the renewal process with those of other recipients. The renewal claim for tax credits does not have to be made from scratch on a new blank form, but it entails asking the claimant to send back a renewal notice confirming that the details on which their claim is based remain the same while setting out any changes, in particular updates to income information. That deals with a point that has been made by several Opposition Members. 
 It is not a matter of receiving a form and continuing to get the credit. There is a requirement on the claimant to send back the renewal notice to confirm that the details on which the claim is based remain the same or to set out any changes. That information is used to check whether an adjustment is needed for the year that has just ended, and to set the award in place for the year that is starting.

Richard Younger-Ross: Will the Minister explain the impression that a new claimant would have if they filled out a form one week and got a renewal notice one week later? That would be bureaucratic and unnecessary.

Paul Boateng: No, it is cause and effect. If one fills out a form and sends it off one would not expect nothing to happen. I imagine that a claimant would welcome something happening because they would have received benefit in the interim, the tax year would be nearing its end and a new year would be about to come. This is, after all, a tax-based system and claimants will do what we all have to do, which is to respond to that. If they provide the information that is required of them they will continue to receive the benefit, and that is how the system works. The hon. Gentleman believes that that would have a negative or detrimental impact, and we shall see whether his judgment is accurate.
 The benefit of putting these matters to regulations to be laid before the House is that we shall be able to reflect on the impact of our approach on issues such as take-up, which means that we shall be able to judge whether this is burdensome or unduly complex. Our view is that it is not, and I hope that hon. Members are reassured that the claims process will be streamlined. I suspect that there is sceptic or two among the Liberal Democrat Members, which is fair enough. In the course of our deliberations I hope to challenge and address that scepticism, and to turn it into a recognition that we are seeking to find the best way forward. Of course, we shall listen to points that are made and bear them in mind when we formulate the regulations. I hope that the amendment will be withdrawn because it is unnecessary in achieving the objective that we all share.

James Clappison: As the Minister said, this has been an important debate in which several helpful points have been made. Although he has eloquently put forward the balance that he seeks to achieve, I must say that there is a lingering sense of unease at the back of my mind because, as the hon. Member for Northavon put it, the Government may be in danger of overstating their case.
 Understandably, the Minister wants to put his case forward, but it should be accompanied by an acknowledgement of the risks that may be involved. He referred to the submission that we recently received from the National Association of Citizens Advice Bureaux, and it will be worth putting its comments on record: 
''The shift the change to 12 month awards which will alter in defined circumstances will represent should not be underestimated. There must be a risk that the loss of the certainty of a six month fixed award could weaken confidence in tax credits . . . NACAB is therefore a bit concerned that the rules proposed by the Tax Credits Bill will be more complex and less workable. If this is the case the system may be daunting, particularly to those who are moving into work for the first time.''
 Those are important concerns that we would do well to bear in mind. 
 We should put those concerns alongside those expressed by the Institute for Fiscal Studies, which deals fairly with the balance that the Minister has set 
 out by acknowledging the benefits of greater responsiveness and a year-long system, but setting that against the risks implicit in such a system: 
''The principle of within year responsiveness relies crucially on people volunteering information to the Inland Revenue within the year, and therefore introduces the risk of substantial (intentional or accidental) non-compliance.''
 In an intervention on the hon. Member for Northavon, I put forward my concern about this matter. When we discuss the details we must be aware of introducing a greater risk of non-compliance that may lead to a greater risk of fraud. We should do our best to reduce the risk of exposing people to temptation. We must understand that this might tempt people not to declare changes in their circumstances that could have a profound effect on their income and standard of life. 
 We must also be aware that we are dealing with people who are not used to the tax system and filling in self-assessment forms, and who do not have famous firms of chartered accountants advising them.

Hugo Swire: Does my hon. Friend agree that insufficient distinction has been made between fraud and inadvertent fraud?

James Clappison: My hon. Friend makes a valuable point. The risk in these circumstances, as has been proved with other forms of benefit, is that people become aware of a change to their circumstances and conceal that fact. When they take the decision to conceal the change in circumstances, they are moving from inadvertence into fraud because they are concealing a material fact. We want to avoid putting them in that position and exposing them to temptation.
 The Minister and the Government will have to monitor how many families have a problem with this because there are significant changes and fluctuations in their income over the course of a year. This is the group that the Government must watch because, and again I quote the Institute for Fiscal Studies: 
''Financial uncertainty and hassle will also be higher for this group of families. The success of the new credits will therefore partially depend on how many families experience these changes and on how good families are at estimating current-year income.''
 I do not want to anticipate the next group of amendments because we are coming on to them with the next clause, but there is a warning for the Government. There is no room for complacency, the system is not entirely straightforward and we want to avoid the risk of making it more complex than it already is. 
 As the Minister has said, a balance must be struck. However, the Government initially chose the balance of the six-month system, and they are changing from a system that they chose so we must be aware of the risks.

Steve Webb: I shall briefly respond to the Minister's comments. On amendment No. 64, I accept his reassurance that we do not need to insert the words
''or is treated as being made''
 if, once the process has occurred, references incorporate the date of the claim. 
 The Minister rightly discerned the scepticism of my hon. Friend the Member for Teignbridge. I can imagine the scene in all our surgeries. Someone who has claimed tax credits the week before the start of the financial year will say, ''I filled in all the forms, I gave them all my details and by return of post I received another form asking, 'Have your details changed?''' As I understand it, that is how it will work. That seems unnecessary. We were trying to be constructive in our amendments, and I hope that the Minister was hinting that there might be scope for looking at the matter again. If an amendment to the same effect were to find its way into the Bill in another place in this building, we would have no objections. 
 I turn to amendments Nos. 45 and 46, which seek reassessment after six months rather than a year. I was disappointed that the Minister hardly addressed the issues of in-year reassessment, whether people will understand how big a change must prompt a claim for reassessment and the suffering that they could face, possibly for 11 months, if they failed to make such a claim. I was disappointed, because those are fundamental issues. 
 Our debates have made it clear to me that the people for whom we seek quick reassessment are those on low incomes who correspond to the current working families tax credit group. If there was automatic roll-over for the income support people and some sort of quasi-automatic roll-over for those on higher incomes, whose tax credit entitlement is not affected by a big change in income because they are in the flat bits of the system, the only people who would need an extra reassessment involving some detail would be those on rather low incomes who could suffer if the wrong assessment were made and whose circumstances were likely to fluctuate. 
 In many ways, the debate has strengthened the case for our six-month proposal, and nothing that I have heard from the Minister reassures me that it is not necessary. I am still, even after four years, slightly hazy about the process, but if the opportunity to divide the Committee on amendment No. 45 arises, I wish to take it.

Paul Boateng: I shall respond first to the hon. Member for Hertsmere. I have had the pleasure of sitting opposite him, listening and responding to him in a number of incarnations—all of them welcome in my case, although I do not know about him—and I know that he lives in a state of perpetual unease. In some circumstances, that might be a healthy, albeit rather uncomfortable, state of affairs in which to find oneself. I do not mean to be complacent, but I believe that in this respect his unease is not justified.
 Of course we must be vigilant; vigilance is certainly justified. We are making a major change, and I hope that I have acknowledged the scale of it. That is one reason why we are ensuring that NACAB, the Institute for Fiscal Studies and others who have expressed a view about these matters are involved as we prepare the regulations and draw up the detail of the system. It is right that they should be involved and also that we 
 should be able to reflect, as hon. Members have, our constituency experience. However, we must consider how the system proposed in the Bill builds on what already exists. 
 The hon. Member for Hertsmere said that in relation to the working families tax credit we initially chose the six-month period. We did, and we are moving on from that. We did not believe that that was the last word. This is a process of reform. The burden on claimants to report changes is a real one and is not to be sneezed at. The hon. Members for Teignbridge and for Northavon as well as some Conservative Members have referred to it. 
 We must remember, however, that the principle is not new. Both income support and JSA claimants need to respond, and are required to respond, to changes in their circumstances and to report those changes. However, this is new territory for tax credits, which encompass a wider population. It is therefore important to make sure—and we will make sure—that the responsive nature of the credit does not mean that we end up imposing excessive requirements to report changes. 
 We plan to consider the area carefully. We shall introduce detailed proposals in the form of draft regulations in due course, and there will be an opportunity to discuss them then. There will also be an opportunity for us to hear and incorporate the concerns of bodies like NACAB, which have day-to-day responsibility for providing advice and information to claimants. We shall need to address the risk of concealing changes, to which the hon. Member for Hertsmere referred, by monitoring those changes closely, as in income support or JSA, or by introducing fixed awards. 
 Our aim is to strike a balance between continuity and flexibility. It is a challenge, but we shall work out the details of the framework in a way that strikes the balance between preventing abuse and not deterring take-up—because that, too, is important. That point has been forcefully brought home to me and to my hon. Friend the Paymaster General by hon. Members of all parties who are concerned with poverty reduction—not least my hon. Friends—and I assure the Committee that we have it very much in mind. 
 With those assurances and having listened carefully to the contributions of those on the Liberal Democrat and Conservative Benches, I hope that hon. Members will not press their amendments.

Howard Flight: This has been a useful debate. I hope that the Minister will not mind my saying that it illustrates the fact that the Revenue and the Treasury have perhaps not fully made up their minds how best to address such difficult territory. In essence, the Government seem to be striving for a system of negative income tax coding, in the same way as tax coding applies positively to income tax. The system is pretty seamless: it can roll from year to year and, where there is no material change in circumstances, it is relatively easy. Clearly, if people's circumstances materially improve, the risks to which my hon. Friends referred arise, and, as the Minister pointed out, if people's circumstances deteriorate, there is the danger
 that people will not know how to apply in time to improve their tax credits.
 The thought goes through my mind that, as the Treasury and the Revenue think further about the issue, they may even conclude that the only reliable way to address those matters is to present what I will call annual negative income tax returns and, as with income tax, permit clawbacks out of tax credits if there have been overpayments. Without such mechanisms, there will be problems. 
 We have addressed the issue in one way and our Liberal Democrat colleagues have raised it in another. The six-month arrangements for working tax credits have been subject to many of the problems on which the hon. Member for Northavon has commented. 
 The Bill is a framework. As I said in moving the amendments, it has been introduced almost too soon—before all the thinking has been done. The clause is all about regulations that may be introduced. Therefore, there is still flexibility for the brains of the Inland Revenue to decide exactly how they will deal with the problems. In that context, it is correct to withdraw amendment No. 15. However, we remain concerned that the framework that the Government are seeking to establish will give rise on one hand to a great deal of money not being clawed back where people's circumstances have improved, and on the other to people in need not getting the extra credits as quickly as they might require them. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendment proposed, No. 45, in page 3, line 41, leave out 'whole' and insert 'first 6 months'.—[Mr. Webb.] 
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 9.

Question accordingly negatived.

Howard Flight: I beg to move amendment No. 16, in page 4, line 7, leave out subsection (4).
 Many aspects of the amendment relate to matters that we have already discussed in some detail, and I will therefore be as brief as possible. Subsection (4) states: 
''An award . . . does not end by virtue of any change''
 affecting the rate at which it is paid. In other words, a change in someone's circumstances does not necessarily end the award. That arrangement could create problems over whether there are 12-monthly or six-monthly assessments. It may create unfairness in the de minimis entitlement of claimants and non-
 claimants. A person who still has a tiny entitlement can go on receiving a larger award. A person who has just tipped over the edge and lost that tiny entitlement is supposed to report it and not get anything. People at the margins will feel a sense of unfairness over the positions of each. 
 Would it not be clearer and fairer for everybody if the system operated on the principle that if there is any change to one's circumstances, the award ends and one is required to re-file information? The arrangement is intended to reduce administration, but it could draw an unfair distinction between the two types of people whom I described. Moreover, it leaves an open door for moneys to go missing, which will be expensive and difficult to recover. That has been a problem with the six-month assessment arrangements for the working families tax credit.

Steve Webb: I wanted to say a few words in lieu of the Minister, but his return has denied me that opportunity.
 The explanatory notes suggest that the thinking behind subsection (4), which the amendment would delete, is to allow for continuity when people move from one circumstance to another. The example given in the explanatory notes is positive—the birth of a child, which enhances the rate of entitlement. Continuity is a problem in the tax and benefit system. When one entitlement stops and another does not start it causes real problems. The subsection allows an award to continue while a recalculation is made. That is beneficial, and I would not want to remove it from the Bill.

Paul Boateng: I am grateful to the Member for Northavon for describing the purpose of subsection (4), which is much as he said. It enables the award of tax credits to be adjusted without requiring new claims to be made when a change occurs that affects the maximum amount of tax credit to which claimants are entitled, and without the entitlement stopping altogether.
 Amendment No. 16 would prevent awards from having that degree of continuity and flexibility. The ability of the new credits to respond to changes during the period of the award is key to the improvements that we seek in the design of the new system. There is an important balance to be struck. The system must have the ability to reflect changes in entitlement as they occur, delivering additional support when it is warranted and reducing it when it is no longer appropriate. 
 Annual awards provide a stable framework for families to know clearly on what basis and for what period their award is made. Within that framework, the new credits will be able to react to changes in circumstances—one of which was outlined by the hon. Member for Northavon—and the rate of the tax credit payable can be adjusted when appropriate. It is important that adjustments can be put in place quickly and that the process is simple for claimants to understand. It would be onerous to require claimants to have their awards stop and then to make a new tax credit claim whenever their maximum 
 entitlement to a tax credit changed. Subsection (4) establishes flexibility within the tax year without interrupting the claim where entitlement continues but at a different rate. 
 I understand why the hon. Member for Arundel and South Downs tabled the amendment, but it represents a real disagreement between us on the proper way of approaching the issue. I am not sure that I will be able to square the circle for him or to satisfy him other than in the way that I have sought to do so far. There is not much that I can add to the points that I made in response to earlier amendments. The subsection is important, and to remove it would be damaging and deleterious to the Bill. I therefore urge the Committee to reject the amendment.

Howard Flight: We are putting down a marker. If we are to have a type of what I call negative income tax PAYE coding to provide continuity—I understand the reasons for that—the Government must think of other ways to monitor it and to get it right. As I have said, negative income tax annual returns may be required to provide the information necessary for keeping up-to-date records.
 The amendment represents the other, jagged approach, whereby an award must be reassessed whenever there is a change. Our point is that the continuity system has some significant problems to solve. Nevertheless, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 5 ordered to stand part of the Bill.

Clause 6 - Notifications of changes of circumstances

Howard Flight: I beg to move amendment No. 77, in page 4, line 30, after 'given', insert
'within a period of 28 days'.

Edward O'Hara: With this it will be convenient to take amendment No. 83, in page 4, line 37, at end insert
'being not less than three months'.

Howard Flight: Clause 6 claims to set out the arrangements for notifying the board of changes in circumstances that affect tax credit entitlement. It is not entirely clear, however, whether the provision of such information will be wholly the job of the individual, or whether there will be any onus on the employer—an issue that I raised on Second Reading. Under the clause as drafted, it appears that the employer may indeed be required to provide such information. The amendment is necessary because the framework remains rather woolly. There is no apparent time limit on the provision of such information. Under our amendment, regulations could require that the board be notified
''within a period of 28 days''
 when a claim ends. 
 The Liberal Democrat amendment, which would require that notice be given within three months, is similar. Doubtless the Government will propose a notice period of their own, with which we may all 
 agree. In any event, it is clear that a sensible notice period is needed.

Steve Webb: I speak in support of amendment No. 83. The time scale for notification of a change of circumstance will be set out in regulations, but if the amendment were accepted, regulations would have to specify a notice period of
''not less than three months''.
 It is perhaps worth pointing out my concern—shared, I suspect, by both Opposition parties—that the debate is being conducted in the absence of any draft regulations. I tabled a question, asking that we see such regulations before or during our deliberations; indeed, to see them at any point would be nice. It is tempting to say that regulations are about detail and the Bill is about principle, so we do not need to see them, but the line between detail and principle is slightly fuzzy. If the implications of certain regulations prove particularly extreme, the entire principle that we are debating will be undermined. I register my concern, therefore, about the lack of even draft regulations. Failure to provide draft regulations is not universal. In fact, draft regulations were available to the Committee that debated the previous Tax Credits Bill. I therefore hope that the Minister can offer a time scale in that regard. 
 Amendment No. 83 would, to a limited extent, circumscribe what the regulations may say, given that we have yet to see them. We are trying not to write the regulations into the Bill, but simply to establish the parameters in which they operate. 
 One example of a change in circumstance—the ending or starting of a relationship—would be reportable in all cases. The issue has been drawn to our attention by the Low Income Tax Reform Group, which, like the National Association of Citizens Advice Bureaux, has first-hand experience of the client group in question. The group states that, where two people's 
''relationship ends in tragic circumstances . . . their first reaction is unlikely to be—Ah! We must inform the Inland Revenue straight away because section 5(3) of the Tax Credits Act''
 requires that we do so. It is clear that they must inform the Inland Revenue at some point, but we should bear it in mind that, just because one partner has walked out, it is not certain that the relationship is definitely over. It may not become apparent for some weeks or months that that is final. That is just one example of how the establishment in regulations of a short notice period would be rather unfair on that client group. 
 Obviously, there is a balance to be struck, and we must also consider administrative convenience and the interests of the taxpayer. A period of three months does indeed strike the right balance—a view that is shared by the Low Income Tax Reform Group. As it modestly says, its representatives are 
''those who habitually advise potential tax credit claimants'',
 and who are very familiar with the circumstances that we are discussing. 
 As I have said, we are not trying to write the regulations into the Bill. Instead, the purpose of our 
 amendment, given that we have yet to see the regulations, is to establish some parameters.

Paul Boateng: Opposition Members have made their points fairly and succinctly, and they contain a great deal of force. I say immediately to the hon. Member for Arundel and South Downs that there will be no onus on employers to report changes in claimants' circumstances, and I hope that he feels reassured by that. I see no obvious manifestation of unease—[Laughter.] Perhaps I should not tempt fate.
 The hon. Member for Northavon has tabled a question for the Paymaster General, to which she will doubtless reply shortly. I do not doubt that she will want the draft regulations to be completed as soon as possible, that her general approach to such matters is to consult and to involve people, and to share as much information as possible, so that we can get matters right. Indeed, that is what we are here to do. None the less, I hear what the hon. Gentleman says, and I will ensure that, so far as is possible, his comments are taken into account in timetabling these matters. 
 There is probably a measure of agreement among all hon. Members on the substance of the amendments. As we have said, the new tax credits are designed to respond to the changing needs of claimants. It is important that awards be able to adjust to changes as they occur. If awards are to adjust to changes in circumstances during the year, it will of course be necessary for claimants to tell the Inland Revenue about those changes as they occur. The clause deals with that notification process. Broadly speaking, it is equivalent to notifications under clause 4. As with deciding how long a period to allow for claims, deciding how long a period to allow for notification involves striking a balance. The provision must be flexible and recognise the practicalities of people's lives. 
 We accept that changes that may affect entitlement could occur when people are particularly busy and tax credits are not at the forefront of their minds. The example of the circumstances surrounding the birth of a baby has already been given. Similarly, as the hon. Member for Northavon said, when a relationship collapses, people do not think clearly about the consequences. It does not necessarily become immediately apparent that the change is permanent. Often, one or both parties harbour unrealistic expectations that are not met. 
 We need to have flexibility and a recognition of real life. At the same time, people need to be encouraged to report changes as soon as practicable so that they receive appropriate support. Allowing people three months to notify changes is the right balance. We have alighted upon that figure because we believe that it gives claimants a reasonable time to identify that the change may affect their award, and to submit notification. Opposition Members may disagree among themselves. Some may prefer 28 days, some may agree with three months, but the consensus will probably be around three months. 
 Amendment No. 83 would write that into the Bill. Although I happen to agree that three months is appropriate, the amendment would not be the correct way in which to proceed. It should not be written into the Bill and would be better dealt with in regulations. 
 Amendment No. 77 is evidence, if it were needed, that it is possible to reach a different view. That is all the more reason for matters to be dealt with in regulation. I do not share the view that 28 days is appropriate, although I understand the reason for the amendment. We want to monitor closely how the system works in practice to see whether three months strikes the right mark. It would be unwise to limit our ability to learn from that experience by including in the Bill a deadline as specific as the amendments urge. I hope that that argument will be accepted by Opposition Members, whether they favour 28 days or three months. We will carefully look at the practical impact of the regulations, just as we will reflect on their content. I hope that hon. Members will not press their amendments. 
 I cannot stress sufficiently the importance of developing a culture in which people are encouraged to report changes, rather than one in which they have an interest in not reporting them. We must get them to see the system as an aid rather than a hindrance. The efforts of the Government, the Inland Revenue and those with whom it works to make advice and information available to those claiming the credit will be focused on that end.

Steve Webb: I am greatly heartened that the Minister is plumping more for three months than 28 days. I will cut my losses and not press the amendment.

Howard Flight: We are content with the three-month notice proposal and I thank the Minister for making it clear that that is the Government's intention. As people get used to tax credits, it is likely that prompt notice will be given if circumstances worsen; if they improve, it is likely that people will take the maximum three-month period. Again, that raises issues of ease of recovery. However, we have an acceptable minimum and on that basis I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Steve Webb: I beg to move amendment No. 61, in page 4, line 34, at end insert—
''; the prescribed description shall include reference to a threshold below which changes in income do not have to be notified.''.
 We are still on clause 6, looking at the regulations concerning notification of changes of circumstances. We are concerned through the amendment to ensure that the regulations, which we have not yet seen, will include a minimum threshold beyond which changes that would reduce someone's entitlement do not have to be reported. There will be further discussion on those thresholds and their size, but we do not want someone who has a marginal change in circumstance to accrue an overpayment or, worse still, be accused of fraud. There could be something in the regulations about that. NACAB bravely put a figure on it and suggested that £500 a year might be a relevant change. Thus if someone received up to about £10 a week more in tax credit than their current circumstance implied, 
 when under their previous circumstance that was not the case, notification or failure to notify would not make any difference to their entitlement. 
 Obviously, as with all such things, there is a balance to be struck. The bigger the threshold, the more taxpayers' money will go to people who are technically not entitled. On the other hand, if the threshold is very small, many people will need to tell the Inland Revenue about trivial changes, which will have an administrative cost. 
 It is worth reflecting for a moment on the fact that quite a lot of changes could affect the amount of tax credit to which one is entitled, especially in the lower income ranges. All manner of changes in child care arrangements, working hours, overtime and family circumstances could affect entitlement to working tax credit, its child care element and child tax credit. We do not want the Inland Revenue constantly to be bombarded by 6 million people telling it all about the fine details of their lives. That is not the world that we want to go towards. 
 The amendment relates specifically to fluctuations in income. The group currently in receipt of working families tax credit are the sort of folk who may do an extra shift or a bit of overtime, and it may be different from one week to the next. There may well need to be some averaging provisions, and there should certainly be a de minimis threshold, which is what the amendment proposes. I would be grateful, in probing the matter, for an assurance that that is the Government's thinking and that there will be such a threshold, and for an early suggestion of the level of threshold that they are thinking about. 
Mr. Boateng indicated dissent.

Steve Webb: The Minister helpfully shakes his head, indicating that he will not tell me a threshold.
 To return to my earlier point, the line between detail and principle is rather grey here. If the Government end up with a tiny threshold, we will be very unhappy with the system, but nor should they come up with a socking great one. There is a balance to be struck. Some sort of ball-park estimate—I am not sure if that is a parliamentary phrase, but it is what we are after—would be very helpful.

Howard Flight: In this territory, as in others, there is a trade-off. In order to reduce administrative requirements on individuals and the Revenue, we could end up, as is the case with longer periods of notice, with more and more tax credits potentially being paid at a greater level than people are strictly entitled to. That, of course, will be paid for by other people's taxes. There must be a balance. The more one goes down that route, the more it highlights the need for an easy mechanism to claw back overpayments, to which I previously referred. One cannot have it both ways. Either there must be a system requiring annual reporting that can claw back overpayments, or the rules must stay pretty tight.

Paul Boateng: I am afraid that I shall disappoint the hon. Member for Northavon. After the dawn comes the deep, deep dusk, and not a hint or shaft of light shall I cast on the issue of thresholds. There will be no
 ball-park figure revealed by anything that I say. Those matters are entirely for the Chancellor. In due course, the gloom will be dispelled and all will be revealed, but I shall not be doing it.
 I shall address the principle that underlies the hon. Gentleman's contribution. I am interested in the line that the hon. Member for Arundel and South Downs is taking, and I can see exactly where he is coming from. Time will tell, but we believe that the system that we have unveiled will be able to deliver without the modifications that have been suggested. It is a matter of judgment and experience, and it will be interesting to see what emerges, but I am confident in the system that we propose. 
 One reading of the amendment suggests an apparent misunderstanding of clause 6 and a misreading of its purpose. Clause 6 is concerned with changes in non-financial circumstances: for example, when a family becomes responsible for a new child. It does not touch at all on how the credits will respond to changes in income from one year to the next. I understand what the hon. Member for Northavon is getting at in his amendment, but he will appreciate that, as drafted, it concerns the regulations setting out changes that decrease the rate of entitlement, which have to be notified by a claimant to the Inland Revenue during the year. 
 The amendment seeks to introduce the proviso that the regulations must include 
''a threshold below which changes in income do not have to be notified.''
 That is not necessary, because the power to make regulations about the changes that must be notified does not extend to regulations about notifying changes in income. Income is dealt with in clause 7 and I shall not anticipate our consideration of that clause, except to point out that subsections (4) and (5) of the clause make it clear that awards will be based on income for a tax year. It would be unreasonable to impose on claimants a formal requirement to notify changes in their annual income during the course of a year because annual income cannot easily be determined until after the end of the year.

Mark Hoban: The Minister has raised a point that concerned several hon. Members on Second Reading. He says that someone's current year income cannot be known; they have to estimate it. Much concern was expressed on Second Reading that people who are claiming a tax credit will have to estimate their current year income and the likely number of hours that they work in a year. Are fears that people will have to estimate those two factors unfounded?

Paul Boateng: I do not think that the fears expressed in that regard on Second Reading bear too close an examination. We will come to clause 7 in due course, but the whole point of subsections (4) and (5) is to make it clear that awards will be based on income for a tax year. It is not a question of imposing on claimants a formal requirement to notify changes of income during the course of the year or to determine in advance what their income will be. The requirement is to notify the Revenue at the end of the year of any
 changes that occurred during the year and that make the information supplied inaccurate.
 A change could involve hours, employment or the household, but claimants are not required to estimate during the tax year what their income will be for the whole of that year. At the outset, awards will be based on the previous year's income and, depending on decisions still to be made on how to respond to changes in income, claimants may have their awards adjusted during the year based on an estimate of the current year's income. That will be determined in the light of decisions that have yet to be made. 
 The concerns that were expressed on Second Reading are not justified. Even if thresholds were set in regulations under clause 7(3)(a) to (d), there would still be no formal requirement to report changes in income to the Revenue during the year. In debates on previous amendments, I said that our aim was to develop a culture in which people asked for reassessment and reported changes if their income had risen. That is sensible because it will reduce the risk of overpayment. Similarly, when people believe that changed circumstances might justify an increase in the amount that they receive, we want them to be in a frame of mind in which they see that as something to help them. We shall actively discourage people from notifying small changes of income during the year to minimise the scope for overpayments. 
 We do not propose to introduce penalties for submitting an estimate of income during the year that turns out to be incorrect. I do not want to trespass on your patience, Mr. O'Hara, by going into clause 7 in detail, but the corollary is that clause 7(9) gives the Inland Revenue discretion to decide whether to adjust payments during the year to reflect a claimant's estimate of their income. That will provide protection against abuse by claimants who wilfully submit unreasonable estimates to obtain extra tax credit. The threat of penalties may deter claimants more generally from asking for reassessment during the year. 
 We want to encourage people to change their attitude. We are moving towards an integrated tax and benefits system and that will involve consumer education. It will require close working relationships with benefits advisers, NACAB and others to smooth the transition—the Revenue is geared towards this—but we believe that the gains at the end of the process justify the proposed actions.

Steve Webb: That was a helpful response, because it cleared up some of my misunderstandings about the way in which the system will work, although I am not sure that it was a reassuring response. In the system that the Minister is describing, changes to circumstances covered by the clause must be notified immediately or within three months, or whatever it turns out to be. Therefore, a change in a relationship or the birth of a child must be notified within three months. Changes in income do not have to be, but there will be a year-end reconciliation, if I understand
 it correctly, although claimants will be at liberty to report such changes. However, the Minister used the phrase ''small changes'', which was the starting point for the amendment, although I accept that it was in the wrong place. He is almost agreeing that there needs to be some concept of small changes for the system to work.
 To avoid pursuing the matter for too long, I accept the Minister's point that the amendment is to a clause that deals with changes in personal circumstances and not changes in income, and therefore does not work here. However, his description of year-end reconciliations concerns me a great deal, particularly when we are talking not simply about the few poor but about 6 million child tax credit recipients, many of whom have never made a tax return and who, as far as I can see, will now all have year-end reconciliations. I suspect that we shall return to that on the next clause, but I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 6 ordered to stand part of the Bill.

Clause 7 - Income test

Steve Webb: I beg to move amendment No. 65, in page 5, line 10, leave out from 'means' to end of line 23 and insert
'current year income or previous year income as prescribed in regulations.'.
 This is the nub of the Bill for us in relation to people's entitlements. Clearly, fraud is an important issue and I know that Conservative Members will seek to raise it. We are particularly interested in the way in which the measurement of income will work. I had to read subsection (3) many times and I still do not really understand it.

Howard Flight: Hear, hear.

Steve Webb: That is reassuring assent. However, I am concerned about the way in which it appears that it will work in a number of respects.
 We are glad that the Minister has had discussions with such groups as the Child Poverty Action Group. Its presumption had been that assessment would be based on the previous year's income. The beauty of that system is that the income is knowable, so the danger of underpayments and overpayments is much diminished. I think that it would be fair to say that members of this client group are not necessarily the greatest record keepers. I do not mean that in a patronising way, but they have not needed to be. Typically, they do not file annual tax returns, and those who do have found the record keeping responsibilities to be a bit more of a stretch. If we require folk on much lower incomes and in much more variable circumstances to do the amount of record keeping that will be necessary to present not only a previous year's income but a plausible estimate of the coming year's income, we shall be asking a great deal. The better model that the amendment seeks is a presumption that the previous year's income would be the norm, and regulations would then prescribe circumstances in which the previous year's income 
 might not be used. I shall give the Committee a few examples to show where that presumption might not be appropriate and to stress that we would prefer the previous year's income to be taken as the norm. 
 Clearly, in income support or JSA cases one would want the circumstances to be updated immediately. A person may have lost his job, so it would not be right to look at last year's income from earnings; they would want to go straight to the current year's income. One would also want notified straight away any big change in the family composition, such as becoming a lone parent or the birth of a first child. If there were big changes in income beyond the threshold, one would want to start looking at the current year's income. In the case of a change in hours that goes across a 16-hour or 30-hour threshold, one might want to go to the new year's income. But beyond those dramatic changes in the family circumstances, it seems a much better route simply to use last year's income, which is knowable and known, for which there is no scope for error and which will be on the P60 anyway. That is the principle behind the amendment, which leaves out subsection (3). 
 I have one concern about the subsection that I should like the Minister to clarify, as, if left in, it could have an anomalous effect. The provision seems to say that if income has gone up by less than a threshold, we go on using the previous year's income. If it goes up by more than a threshold, we use the previous year's income plus the amount of the increase—not the whole amount. If we use the whole amount, there is huge 
 discontinuity. However, the paradox with that approach a year on is that, if nothing has changed, the previous year's income will include not just the income for the year before that plus the bit above the threshold, but the width of the threshold as well. 
 If that is as clear as mud, I could illustrate it for the Minister with some figures, but a disregard effect seems to be at work in subsection (3). If income has gone up beyond the threshold, the width of the threshold is disregarded in the assessment and only the bit above the threshold is assessed. Will that disregard continue a year on from that or will the system suddenly say, ''Hang on a minute. You've got that income. Now we shall start using it for this part of your income''? That could create a jump, especially if the threshold was big. Again, NACAB suggests that a threshold of £2,000 might be appropriate for changes in the other direction. 
 If subsection (3) remains in the clause, an anomaly could arise, unless I have misunderstood it. We would prefer a presumption based on the previous year's income and then for circumstances to be prescribed in which the current year's income would be used instead. We believe that that would be a simpler system—although I have not presented it as such—than that contained in subsection (3). 
 Debate adjourned.—[Mr. Sutcliffe.] 
 Adjourned accordingly at two minutes to Seven o'clock till Thursday 17 January at half-past Nine o'clock.